What Is Value-Based Insurance Design All About?

Posted on February 8, 2017

Value-based insurance design is becoming an increasingly popular approach with both public and private payors seeking to improve service quality and lower care costs. Read on for a helpful guide to the basics of this innovative insurance strategy.

What exactly is value-based insurance design?

Value-based insurance design (VBID) is a strategic approach to structuring health insurance that uses incentives to drive patients and providers alike toward the most valuable health services—that is, those services that provide the most benefit relative to how much they cost.

To determine the value of different health services, insurers, payors, and researchers adopt an evidence-based approach, analyzing cost and health outcomes data to generate a clear picture of which services are higher-value and which services are lower-value. Payors (including employers) can then leverage these determined values to create incentives for patients to seek out those valuable services that offer the greatest return on investment.

For example, some VBID programs might motivate patients to use high-value services by lowering the deductible or the out-of-pocket costs associated with those services. Conversely, other VBID programs might seek to discourage patients from using lower-value services through negative incentives, like increased out-of-pocket costs. (The industry tends to refer to this use of positive and negative incentives as the “carrot and stick” approach.)

One key concept to understand about VBID is that it is frequently designed with “clinical nuance” in mind. In other words, unlike the “one-size-fits-all” approach typically associated with fee-for-service care, VBID recognizes that different medical services produce different outcomes and benefits, and that the true value of any health care service depends on a number of contextual factors, including who is using the service and where and when the service is provided. This idea of nuance and context is one of the most important ways in which VBID differs from traditional cost-sharing insurance approaches, where patients’ health care costs have very little connection or relationship with their health status.

What are the main objectives of VBID?

Broadly speaking, the primary objective of VBID is to optimize return on investment when it comes to health care—in other words, to ensure that medical expenditures yield the greatest positive health impact possible. Supporting objectives of VBID include reframing the provision of health benefits to take into account the relative clinical value of services, as well as their actual cost; and boosting health outcomes by increasing adherence to evidence-based services through incentives.

It’s important to note that health care cost reduction alone is not typically a primary outcome or goal of VBID. VBID is not about reducing costs at the expense of service quality or effectiveness. Rather, VBID aims to increase the relative value that patients, providers, and payors alike can all benefit from. There is limited evidence to work with given how relatively new most VBID programs are, but research to date suggests that VBID strategies may not entirely result in a reduction in overall health care costs, but can yield greatly improved adherence, quality, and outcomes for the same cost when compared with traditional cost-sharing insurance models.

What are some different approaches to VBID?

Because VBID is all about context, each VBID program must be tailored to best fit the employer or payor, the patient population, and the health care setting it serves. No single model will be appropriate for every situation. However, most VBID programs tend to incorporate one or more of the following fundamental design approaches:

Design by service—In this approach, co-payments are lowered or eliminated altogether for designated health care services or medications (such as asthma drugs or cholesterol screenings), regardless of who uses the services.

Design by condition—Patients who have specific clinical diagnoses (like pre-diabetes or hypertension) benefit from reduced or waived co-payments for related services or medications under this approach.

Design by condition severity—This approach targets patients who are at high risk for disease and costly associated complications; reduced or waived co-payments serve as incentives for such patients to participate in disease management or other proactive programs.

Design by disease management condition—High-risk patients who are active participants in disease management programs benefit from low or no co-payments under this approach.

What barriers to VBID implementation exist?

Though VBID holds the promise of significant benefits in terms of reduced costs and improved care outcomes, industry experts agree that its widespread implementation may prove challenging in a health care system that has been strongly resistant to change. Some of the main barriers to VBID implementation, particularly among self-insured employers, include:

Regulatory concerns—Participants in VBID plans (such as employees) may have concerns regarding the privacy of their information under such plans. For employers, ensuring compliance with HIPAA regulations concerning data sharing and transfer can be costly and complicated.

Cost—Because a key part of VBID approaches involves reducing the cost to consumers for particular services, payors may find their health care costs are actually higher in the short term. While the idea is that long-term improvement in clinical status will offset these initial costs, it is still a difficult concept for payors and employers to embrace.